SPR Release Symbolic and Political
(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)
In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers look at the effects of the U.S. Strategic Petroleum Reserve (SPR) release, rig count trends, potential price spikes and more. Read on to find out what they had to say.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Tom McNulty, Houston-based Principal and Energy Practice Leader with Valuescope, Inc: Many market participants here expected the Administration to announce an SPR oil release. And so it was, earlier this week, a 50-million-barrel release was announced. 18 million had been authorized anyway in Congress, so it is really an additional 32 million barrels. Brent and WTI traded up on the news and have since traded down a bit. Trading is light because of the Thanksgiving holiday. This action will have little to no impact on the supply demand mechanics in the oil market. It is symbolic and political in nature. The SPR is for emergencies, such as those caused by massive storms or wars. It is not a tool to lower fuel prices for the holiday season.
Rigzone: What were some market surprises?
McNulty: I was surprised yet again that the rig count did not move up by more, only six last week. I spoke with a contact in South Texas yesterday who is seeing a lot of rig activity there. It seems to me that a good number is about 10 per week. Maybe a better number is the change in DUC wells. It was 5,326 in September, per EIA data, and dropped to 5,104 in October. That is a pretty big move.
Mark Le Dain, vice president of strategy with the oil and gas data firm Validere: The market did not drop on the SPR release, which surprised some but makes sense given the tight dynamics. All that's really occurred is that the buffer the SPR provided for future shortages has been reduced, which in practice could actually be more likely to result in price spikes over the next several months.
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